Tobacco Stocks: Large Dividends Not Worth Sinning Over

Although selling traditional cigarettes is highly profitable, the business is in decline and is expected to keep declining. Tobacco companies need to find new ways to grow and diversify their businesses. Considering what happened with Juul, the IQOS brand runs a similar risk of regulatory crackdown internationally and in the U.S., where Philip Morris has partnered with Altria to sell the product line.

• The company also acquired alcohol companies Miller Brewing Company and The South African Brewers.
• This can be due to the rising population, increasing income levels, and relaxed government regulations.
• You can read the appendix at the bottom of this page, detailing what tobacco stocks performed best in 2018.
• It surpassed the Street EPS estimates in three of the trailing four quarters.

This has helped the company grow its sales meaningfully in recent quarters, even though the volumes of traditional cigarettes have remained steady. Philip Morris counts tens of millions of users of IQOS products, and as we can see above, it is helping to drive gains in shipment volumes. A potential game-changer for the company is the expansion of IQOS in new markets. Philip Morris has increased its capital expenses in the last few years in order to develop and manufacture this product, and it’s being rewarded with strong results globally.

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Its net cash generated from operating activities increased 7% year-over-year to £10.39 billion ($13.14 billion). The POWR ratings assess stocks by 118 different factors, each with its own weighting. The information in this site does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of or solicitation for transaction in any financial instrument. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority.

• You can find more Consumer Defensive stocks, updated daily, on Benzinga’s Best Consumer Defensive Stocks listing, too.
• Thus, almost all earnings are available for shareholder distributions, reinvestment in future growth, or share repurchases.
• ETFs and funds that prioritize investments based on environmental, social and governance responsibility.
• On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article.

Total fund flow is the capital inflow into an ETF minus the capital outflow from the ETF for a particular time period. On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. Universal was founded in 1886, generates about $2 billion in annual revenue, and trades with a market capitalization of $1.3 billion. Altria has an exemplary dividend history, having boosted its dividend for more than half a century consecutively, and qualifying it for the coveted title of Dividend King.

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Further brands owned under ITG Brands include Winston, Maverick, Kool, USA Gold, Salem, Dutch Masters and Backwoods. Its Fontem Ventures arm is developing its next-generation https://trading-market.org/ products, primarily under its vapour brand blu. It also has a large European distribution business operating across Spain, France, Italy, Portugal and Poland.

In July 2017, the company acquired the remaining 48% stake in Reynolds American Tobacco that it did not already own. This cemented its competitive position as one of the world’s largest tobacco companies. With 1.4% expected EPS growth, and a 7.8% dividend yield with a small boost from an expanding P/E multiple, we expect 10.5% annual returns for Altria stock over the next five years, and rate it a buy. Altria has largely been able to offset smoking declines with price hikes. And, as its volume sales have decreased, its production cost has decreased as well. While Altria has an uphill climb in front of it, it appears conditions are stabilized with its core tobacco business.

Philip Morris Intl (NYSE:PM)

With a dividend payout of ~79% for the current fiscal year, we view Universal’s dividend as moderately safe, with the caveat that the company faces headwinds due to the steady decline of the tobacco industry. Universal reported first quarter earnings on August 3rd, 2022, and results were quite strong. Revenue was up 23% year-over-year, while cost of goods rose 22%. That meant gross margins rose 70 basis points to 18.5% of revenue, and adjusted operating income was up 5% to $13.3 million. Ingredients revenue soared 46% higher year-over-year due mostly to the company’s 2021 acquisition of Shank’s Extracts.

Over the past nine months, the stock has gained 5.2% to close the last trading session at $43.95. In terms of the trailing-12-month net income margin, MO’s 27.10% is 759% higher than the 3.16% industry average. Likewise, its 60.79% trailing-12-month EBITDA margin is 517.5% higher than the industry average of 9.85%.

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This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. Before diving deeper into the fundamentals of these stocks, let’s take a closer look at the state of the tobacco industry. This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument.

Cigarette companies have been viewed in a negative light for many decades for their addictive and harmful effects. Undoubtedly, no amount of marketing spending or lobbying will be able to change how the public views tobacco companies. Philip Morris is one firm taking steps to become ESG-friendlier with lower-risk product offerings. Divestment advocates advanced their own ethical social policy frame, while also arguing https://bigbostrade.com/ that tobacco investments were no longer sound fiscal policy. They found public platforms in 25 states (and additional local jurisdictions), and they carried the field in 30% of these. In the jurisdictions where divestment advocacy succeeded, the issue was championed by at least one important political leader, and these leaders generally put forward negative fiscal as well as positive social policy frames.

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Indeed, health organizations like the American Lung Association actively encourage localities to raise taxes on cigarettes and other tobacco products to discourage usage. An increasing number of U.S. states have significantly raised the tax on cigarettes to reduce their budget deficits, and to reduce the potential appeal of smoking for consumers. Given the propensity of localities to use tax increases on cigarettes, the situation will likely only get worse for tobacco stocks. The number of people smoking at least 15 cigarettes a day has plummeted in the past few decades.

Despite being on the receiving end of stringent ESG standards, tobacco stocks have been significant wealth creators for investors over the past few decades. However, with inflation easing considerably https://forexbox.info/ from last year’s peak, cigarette sales are likely to grow. Although the tobacco industry has proven to be consistently profitable its long-term future has been under constant threat.

What’s the Difference Between Cigarettes and Heated Tobacco?

While we don’t see another cut as needed, we also don’t believe the company can raise the dividend. Vector Group is an unusual combination of a real estate investment firm and a tobacco company. The latter was founded in 1873 and continues to operate today as the Liggett Group, while the real estate business came later.